Thinking:People are doing it wrong! Digital Elite Camp presentation. How cognitive biases and mental heuristics help to sell more. https://www.dreamgrow.com/thinking-cognitive-biases-in-sales-and-marketing/

1. Thinking:
People are doing it wrong!
How cognitive biases and mental
heuristics help to sell more.
Priit Kallas, Dreamgrow

2. Explanatory slides
I have added the explanations as text slides between the original presentation
slides.
Take a look at the whole content combined to a blog post here.

3. Estonia

4. Not have enough Traffic?
Understanding how people think can be applied to more situations than statistical
methods like conversion optimization. I live in a tiny country of Estonia. The main
problem we have implementing conversion optimization is that most of the time
we do not have enough traffic. This means that sometimes the experiments do not
reach statistical significance thresholds.
In our case the problem is small population. Marketers from countries with
populations in low millions or even less have this problem. Iceland for example.
The same problem occurs when you are marketing to a very small target audience.
When you have 100 or less conversions per month then the statistical results start
to be shaky.
Cognitive biases will give you a toolset that has been tested on larger audiences
and found to increase desired results.

5. Deeper understanding
of human behavior

6. Where and when we get the message has an effect
on the result. Office, home, car, mobile, desktop...

7. Location and timing
Where and when we get the message has an effect on the result. Office, home,
car, mobile, desktop, etc. Research has shown that people who vote in schools are
more likely to support tax hikes that will fund education.
Results: 56% of voters voted for a pro-school budget when voting in a school vs.
53% otherwise. It’s statistically significant and was reproduced in a lab
environment 64% of people voted for a fake pro-school budget when shown
pictures of a school vs. 56% who voted for it otherwise.
What this means for marketers is that you can target and time your campaigns so
that you reach people in situations that are more favorable for you. Want to reach
people on desktops? Consider getting a message to them during the working
hours when they are most likely to be using a computer. To get them on mobile
target early morning hours, later in the evening or commuting hours.
Targeting people in the evening is especially sneaky as most of the willpower is
depleted and people are more likely to be persuaded by marketing messages.

8. People don’t think!

9. People don’t think!
We are all going through life on an autopilot. Our brains are using hundreds of
heuristics to avoid spending too much energy. This is called System 1. People will
choose what is comfortable and familiar whenever it is possible. We don’t like
things that are complex and strange.
Make sure you use simple words, easy to understand messages, familiar imagery,
and other easy to digest elements in you r marketing. If your content makes
people think too much you will lose sales.

10. Anchoring Effect
First bit of information
establishes a range of
possibilities.
Everything that follows
will be anchored by that
opening information.

11. Anchoring Effect
First bit of information establishes a range of possibilities. Everything that follows
will be anchored by that opening information. Anchoring effect is almost
impossible avoid. This works even if you consciously know that the anchor is
wrong and you are being manipulated.
In one study two groups of students were given different anchors that were clearly
wrong. They were primed with a question whether Mahatma Gandhi died before
or after age 9, or before or after age 140. As expected the two groups answered
differently the average answer being 50 in the low anchor group and 67 for the
high anchor group.
Just so you know Gandhi was assassinated when aged 78.

12. $20,000
website

13. 18
250
10,200 € or 12,100 €

14. Less-is-better effect

15. Less-is-better effect
People tend to evaluate different aspects of the product or service depending on
whether they are doing a side by side comparison or view items separately. Some
examples from research:
• seven ounces of ice cream overflowing in a small cup was preferred over eight
ounces of ice cream in a much larger cup
• a dinnerware set with 24 intact pieces was preferred over a dinnerware set of
31 pieces with a few broken pieces
• a smaller dictionary was preferred over a larger dictionary with a torn cover
• participants perceived people giving away a $45 scarf as more generous than
those who gave a cheap $55 coat.

16. Availability heuristic
We overestimate the
importance of information
that is available to us.

17. Running ads for winter
tires when there’s a
news about car crashes

18. Availability heuristic
We overestimate the importance of information that is available to us. Running
ads for winter tires when there’s a news about car crashes gets more people
buying new tires. You can use that in by creating lots of ads that you can run
instantly when the news that could influence the decisions of your buyers breaks.

19. Endowment Effect
You are less likely to give
up something you own,
than you would be
willing to pay
to get it.

20. Endowment Effect
You are less likely to give up something you own, than you would be willing to pay
to get it. In a classic studyDaniel Kahneman, Jack Knetsch and Richard Thaler gave
mugs to participants. When people felt that they own the cup then they valued it
approximately twice as high as “just a cup”.
Participants were willing to buy a mug for $5, but once they owned it, they
wouldn’t sell for less than $10.
This also happens in auctions when people placing bids feel the item is already
theirs. This will lead to overbidding just to get “my” item.
You can use endowment effect in many ways:
• Scoring points – awarding loyalty points for buying will lead to situation where
people will prefer your offerings just so they wouldn’t lose points.
• Provisionally awarded bonus – Here you go, here’s your reward. It is yours if you
reach this or that milestone.

21. Using Endowment Effect
• Scoring points
• Provisionally awarded bonus
• Need for consistency
• Sunk cost fallacy
• Loss aversion

22. Endowment Effect
You can combine these by awarding points in advance on conditions that have to
be met in certain time period. Bonuses awarded in advance have been shown to
increase buying frequency. In a study car wash customers had to collect 8 stamps
to get a free wash. In one condition the stamp card had 8 empty slots for stamps.
The second version of the card had 10 slots but two were already stamped.
Redemption rate for the 10 stamp version was 34 percent versus 19 in the case
with 8 stamps. Additionally the 10 stamp cardholders washed their cars more
often with 2.9 days less between washes than the other condition.
This technique also relies on our need for consistency. When people tend to
commit to something then they are more likely to follow through if the
commitment is somehow formalized. In this case the commitment device was the
stamp card.

23. Sunk cost fallacy
Sunk cost fallacy or escalation of commitment is a behavior where increasingly
negative results in an activity will lead more investment of time, money, and even
lives. People involved will go on in the same direction rather than altering the
course or stopping altogether. The saying goes:
• If you find yourself in a hole, stop digging!
Seems that we are often unable to do that. Sunk cost fallacy is irrational behavior
with negative consequences. This is how some unethical marketers get people to
increase commitment even in situations where that will result in larger losses for
them. For example Nigerian letter scammers may milk their victim for a long time
before losses are big enough for them to stop.

24. We aspire to round number goals

25. We aspire to round number goals
20 pushups not 19. When people have a number as a goal then they tend to make
that number round. Major League Baseball players are four times more likely to
end the season with a 0.300 batting average than 0.299. The same is true of SAT
score, training distances, and time.
How do you use it? First thing when creating goals make sure they are round.
Second, select a round number that is above your average goal. Third, don’t go so
high that your audience feels that the number is unreachable.
For example in a chain of gas stations ran a campaign where you could win a car by
pumping exactly 33.00 liters of gas. That number was above the average but not
too much.

26. IKEA effect
Disproportionately high
value on things that you
partially assemble, such
as IKEA furniture...
... regardless of the
quality of the end result.

27. IKEA effect
When you work on something then you will place disproportionately high value on
that thing. IKEA furniture is one of the best examples of this. And it does not
matter what is the quality of the end result.
Ikea effect is a psychology tool you can use in onboarding process. Give your users
simple steps to get something done and then they will be more likely to complete
the whole process. The results can be amplified by added endowment effect and
giving out rewards.
You should keep in mind that IKEA effect only works when people are able to
complete the task. If they fail at the task then they lose interest.

28. Just add water!
Give people easy first steps to put in their own effort.

29. Just add water!
To get your audience moving towards endowment and IKEA effect give them easy
first steps to put in their own effort. Begin with something that is very easy to do
and make the tasks harder step by step. This will ensure that the largest number of
people will reach the goal you have set.

30. Loss aversion

31. Loss aversion
Study after study has shown that we try harder to avoid loss than gain rewards.
The relationship between losses and gains is about two to one. This means that if
you avoid losing $5 you get more satisfaction than finding $5. Finding $10 is about
the same value.
There’s some experimental evidence that loss aversion is stronger when we have
to work for results and compare ourselves to others in a competitive situation.
In marketing you can use loss aversion to bring back existing customers through
rebates and collected loyalty points. In SAAS model you can expect people who
have put in more effort in trial period convert to paying customers at a higher rate.
You can test this in your own marketing by framing the same transaction in as a
loss or as a gain: would you rather get a $5 discount, or avoid a $5 surcharge? The
price customers pay at the end is the same but the frame changes how people
think about it.

32. Choice-supportive bias
When you choose something, you tend to feel
positive about it, even if the choice has flaws.

33. Choice-supportive bias
When you choose something, you tend to focus on positive feelings about it,
ignoring the flaws your choice has. We tend to amplify the positive qualities of the
choices we have made and downplay the attributes of other options we had at the
time of decision. Studies show that memories about our choices tend to be
distorted in predictable ways. That also applies to ignoring the downsides of our
choices. First our opinion about our actions will be biased but this bias can also
change our future actions.
For example this is a big part why we keep using one brand over another. Choice-
supportive bias may be one of the most important psychological factors behind
Apple becoming the most valuable company in the world.
You can boost choice-supportive bias in your marketing by active post-purchase
communication that highlights various aspects of the product or service. In a
generic form “Did you know you can do X” will help you give more satisfaction to
your new customer. This will also increase the potential for repeat purchases.
A special case of this is post-purchase rationalization where people actively
persuade themselves through rational argument that a purchase was a good value.

34. Post-purchase
rationalization
People persuade
themselves through
rational argument
that a purchase was
a good value.
576ppi
Samsung Galaxy S5 LTE-A

35. Unit bias
We believe that there
is an optimal unit size

36. Unit bias
We want to finish a given unit of a task or a unit. We believe that there is an
optimal unit size and we want to get through to the end receiving satisfaction from
completing the unit. This is incredibly strong driver in food industry portion sizes
and healthy eating. Six pack, larger bottles, and plates.
This is also a great tool to get people to finish tasks. Give them a checklist or a set
of tasks that have a defined end point and the completion rates will be higher than
for an open ended activity

37. Small site, no data?
Important to understand
what makes users tick.
Talk with them, involve
them in the process.

38. Teaching and using
statistics did not
develope an
intuitive sense of
the reliability of
statistical results in
small samples.
Our judgments
were biased...
- Daniel Kahneman

39. Confirmation bias
We search, interpret,
and recall information
in a way that confirms
our beliefs and
hypotheses.

40. Confirmation bias
We search, interpret, and recall information in a way that confirms our beliefs and
hypotheses. In marketing we can use the confirmation bias by asking leading
questions. For example in a study people were asked about their social lives in two
different ways. First “Are you happy with your social life?” or second “Are you
unhappy with your social life?” In the first condition people felt that they were
more satisfied than participants in the second group.
Related to confirmation bias is preference for early information. Great copywriters
know instinctively that the word order influences how we perceive ideas. This has
been confirmed by research. When you list positive aspects before the negative
people will form a more positive impression of someone. In the experiment some
participants were presented a list beginning with positive words “intelligent,
industrious, impulsive, critical, stubborn, envious” and others got the same list in
reverse.

41. Confirmation bias
But I didn’t add confirmation bias here as a marketing tool. For you as a marketer
it is important to avoid confirmation bias in your own work. Whenever you
experiment with different marketing tools make sure the results are really there
and not just figment of your imagination.
Try to contradict your own ideas so you will understand what’s working and what’s
just a coincidence. This will make you better marketer and you will build a cache of
tools that work more often than they don’t.

42. Observer-
expectancy
effect
When a researcher
expects a given result and
therefore unconsciously
manipulates an
experiment or
misinterprets data in
order to find it

43. Observer-expectancy effect
This is another cognitive bias that you as a marketer should avoid. This happens
when a marketer expects a given result and therefore unconsciously manipulates
an experiment or misinterprets data in order to find it.
Observer-expectancy effect is most notable when analyzing data and discussing
the results. Most of us have an opinion about what the results of a campaign mean
and tend to lean towards the explanations we expected. To avoid potential
mistakes try to be as objective as possible.

44. Hyperbolic
discounting
People want an
immediate
payoff rather
than a larger
gain later.

45. Hyperbolic discounting
People want an immediate payoff rather than a larger gain later. The discounting is
larger for sort initial periods of up to one week. For longer periods ranging from 10
to 21 weeks the decrease in perceived value is slower.
For marketers this means that you should structure the payment plans and
bonuses in a way that potential buyers feel the current value they get and ignore
the expenses that come with the decision later. Some examples of that include:
• Get your new smartphone now, pay only $49/month for two years.
• Get your credit card now, first month 0% APR later 20%.
• First 3 months free, $X after that.
We have all seen this type of advertising. Time and again most people will take
these deals and feel totally fine. We want instant gratification, consequences be
damned.

46. The Current Moment Bias
Some of us would rather
experience pleasure
now, while leaving the
pain for later.

47. The Current Moment Bias
When we have to make a choice then we often chose to have pleasure now and
leave the pain for later. Would you have to decide what you will have for snack
next week your choice between healthy and tasty will then to be healthy. The
same choice right now usually leads to a less healthy but tastier option.
A 1998 study showed that, when making food choices for the coming week, 74%
of participants chose fruit. But when the food choice was for the current day, 70%
chose chocolate.

48. Bias blind spots
We see cognitive biases more
in others than in ourselves.

49. Bias blind spots
Of course, the last two cognitive mistakes are something you would never make.
The reason you think that is that we see cognitive biases more in others than in
ourselves. Everyone thinks that they are less biased than other people.
We think we know how and why we make our decisions and we know that we
don’t have a bias. We are objective and reasonable people after all. However, most
of our decisions are the influenced by unconscious processes and we can’t see
them. Unconscious processes are hidden leading us to think we don’t have them.

50. A bat and ball cost $1.10.
The bat costs $1 more than the ball.
How much does the ball cost?

53. Your name here

54. But you don’t need that...

55. Picture
superiority
effect
Concepts learned by
viewing pictures are
more easily and
frequently recalled
than those that are
learned by viewing
their written word
form counterparts.

56. Picture superiority effect
Concepts learned by viewing pictures are more easily and frequently recalled than
those that are learned by viewing their written word form counterparts. Research
shows that images are most important elements of print advertising. This result is
the same for consumer and business audiences. A lot of research has been done
on print advertising. Print is not the most important advertising format in 21st
century but some of the ideas can be applied to digital medium.
Always use images in your content, product, and service pages. Larger and higher
quality images tend to make ecommerce sites convert better. While it’s clear that
you should have great product images. What to do when you have a service like
accounting? You can’t easily take a picture of accounting and use that. So, most
marketers fall back to clichés. A lady with glasses and a calculator, businessmen
shaking hands and smiling into camera…

57. Picture superiority effect
Please don’t do that! Jakob Nielsen’s studies
have shown that these images are like Teflon to
people, their eyes will slide right over them.
Avoid images that do not add value to the
content.
Back to our accounting example. What to use in
the place of smiling businessmen? Draw a graph
of the process how you make your customers
lives easier. Ask a designer to make it look
beautiful and use it. The same approach works
for many complex services. Visualize, then
simplify.

58. Cognitive biases
and mental heuristics
• 92 Decision-making, belief, and behavioral biases
• 26 Social biases
• 51 Memory errors and biases
• https://en.wikipedia.org/wiki/List_of_cognitive_biases
• https://en.wikipedia.org/wiki/List_of_memory_biases